Cisco Posts 50% Jump in Profit
Profit at Cisco Systems Inc. rose 50% in its fiscal second quarter to $991 million, or 14 cents a share, as the computer firm’s cost cutting more than outweighed a slight drop in sales.
The dominant maker of networking equipment said Tuesday that it recorded sales of $4.7 billion, down 2% from the $4.8 billion it brought in during the same period a year ago. Profit in the year-earlier period was $660 million, or 9 cents a share.
Cisco executives said they were exceeding their goals for improving productivity and boosting the company’s profit margin, but warned that its biggest customers have been growing more conservative in their spending plans.
On the economy, world political outlook and other issues important to Cisco but beyond its control, Chief Executive John Chambers said he was “a little more cautious than I was last quarter.”
Cisco said sales in the current quarter might slip by as much as 3% more in the third quarter, disappointing investors and analysts who on average had been forecasting revenue of $4.76 billion.
“Cisco continues to out-execute its peers in a difficult environment, but nevertheless investors were looking for more improvement in revenue,” said Mark Sue, an analyst with C.E. Unterberg, Towbin. Unterberg does no investment banking business with Cisco, and Sue does not own any shares, which he rates them “market perform.”
Cisco shares slipped to $13.13 in after-hours trading Tuesday. They had closed down 28 cents at $13.20 in regular Nasdaq trading before the earnings report.
Executives of the San Jose-based company said they were continuing to get fewer orders for new gear and that they would begin a $150 million marketing campaign to try to gain market share from lower-cost rivals.
Chambers said the best growth opportunities lie in Cisco’s core area of routers and switches that direct Internet traffic; in selling to telecommunications service providers who now spend about 3% of their capital budgets on Cisco gear; and in emerging technologies for security and other functions.
“In what is probably the most challenging environment the information technology industry has ever faced, we are very pleased with our results,” Chambers said.
He said the increased efficiencies would put Cisco in a position to return to sales growth of as much as 20% in its main markets once the economy rebounds.
But analysts said little has changed in Cisco’s fundamentals during the last year.
“It’s verbatim to the last two or three quarters,” said Sanford C. Bernstein analyst Paul Sagawa, who doesn’t own Cisco shares and whose firm does no Cisco banking. He expects the shares to track the rest of the stock market.
“The company has done well on managing expenses, while the sales outlook continues to just plug along with no real signs of optimism,” Sagawa said.
In the three months ended Jan. 25, Cisco increased the amount it spent buying back shares to $1.5 billion from $1.1 billion in the fiscal first quarter.
Chambers reiterated a promise to consider offering a Cisco dividend if a White House proposal to make them tax-free becomes a reality.
“We will continue to listen to you, our shareholders,” he said on a conference call and Webcast.
Chambers added, though, that Cisco sees the best uses of its cash flow of more than $1 billion a quarter as being additional share buybacks, minority investments in companies with promising technology, and outright acquisitions.
